Analyst conference - 2020 results-March 18, 2021 - Deutz AG
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Analyst conference – 2020 results – March 18, 2021
Disclaimer Unless stated otherwise, all the figures given in this presentation refer to continuing operations. The details given in this document are based on the information available at the time it was prepared. This presents the risk that actual figures may differ from forward-looking statements. Such discrepancies may be caused by changes in political, economic, or business conditions, decreases in the technological lead of DEUTZ’s products, changes in competition, the effects of movements in interest rates or exchange rates, the pricing of parts supplied, and other risks and uncertainties not identified at the time this document was prepared. The forward-looking statements made in this document will not be updated. 2
Agenda Agenda Strategy Dr. Frank Hiller | CEO 3
Our challenge: a market environment with many moving parts...
Emissions Hybridization Efficiency Electrification
reduction gains
Noise E-fuels
Downsizing
cancellation
Hydrogen
Optimization of LPG/CNG
drive solutions
Zero-emissions
Sustainability & target NOx
'well-to-wheel' view
Need for sustainable drive systems, including in off-highway applications
4
…meets a highly diversified customer base
Broad customer base with different power requirements
5
Open-minded approach to technology
Synthetic fuels
Biodiesel Multi-fuel Hydrogen Sustainable fuels
H Green electricity
48V 360V Battery-powered
Mild hybrid full hybrid drives Fuel cell
DEUTZ is tackling the challenges in off-highway applications by ensuring compatibility with different technologies
6
Piston engines have come a long way…
1999 2004 2006 2012 2014 2019
EU STAGE I EU STAGE II EU STAGE III A EU STAGE III B EU STAGE IV EU STAGE V
US Tier 1 US Tier 2 US Tier 3 US Tier 4i US Tier 4
NOX
Particulate emissions
NOx and particulate emissions reduced by around 97% since 1999
7
… and still have a long way to go… DEUTZ TCD 5.2 L4 All new
…especially with alternative fuels
DEUTZ G 2.9 L4 DEUTZ TCG 7.8 hydrogen engine
53 kW power H2 ignition system
H2 supply system
ECU
(electronic control unit)
LPG/gasoline/bifuel ready
▪ Base engine DEUTZ 2.9 L Diesel ▪ Base engine DEUTZ 7.8 L Diesel
▪ Lower emissions levels allow indoor use ▪ A hydrogen-fueled combustion engine is nearly emissions-free
▪ Exhaust aftertreatment cheaper than for diesel ▪ Pre-development started
Various powertrain concepts under development
9
With we are prepared for electrification
HV hybrid power pack 360V Fully electric drivetrain 360V
TCD 2.2 (55.4 kW) On-board charger
42 kWh li-ion
battery pack
Clutch module
Electric motor 40 kW
Hybrid gearbox Electric motor
▪ Applicable to all DEUTZ combustion enginesOur goal: the optimal technology for each application
Piston engines
Freeways, (diesel, LPG, CNG, e-fuel, H2)
fields,
construction sites
Operating range /
energy supply
Distance to
Hybrid
powertrains
Factory sites, Electric
cattle sheds powertrains
low Energy demand / cycle high
Competitive powertrains for all of our current off-highway markets
11Agenda Agenda Overview & highlights of 2020 Dr. Frank Hiller | CEO 12
Overview ▪ Sharp decline in sales figures and EBIT before exceptional items in 2020 compared with 2019 due to coronavirus ▪ Noticeable upward trend in the market – significant improvement in business performance in the final quarter of 2020 compared with previous quarters ▪ Successful launch of the Transform for Growth efficiency program – restructuring costs totaling €31.9 million recognized as an exceptional item in 2020 ▪ Focused implementation of the growth initiatives despite the coronavirus crisis ▪ Expansion of sustainability efforts ▪ Improved outlook for 2021 13
Successful launch of Transform for Growth
▪ Substantial reduction in jobs by 2022:
− Workforce reduced by 477 in 2020, partly through a reduction in the
number of temporary workers, fixed-term contracts coming to an end, Our target:
and natural attrition
− Voluntary redundancy program for the German sites to reduce the
number of positions by 350; taken up by 302 employees by March 12,
2021 – runs until March 31, 2021
approx. €100mn
gross cost savings p.a.
▪ Restructuring costs of €31.9 million recognized as an exceptional item from the end of 2022
in 2020
▪ Supplementary collective pay agreement has been agreed:
− Undertakings from employees have been agreed for the three-year term
of the agreement in order to secure the future of the sites
− Capital expenditure of approximately €41 million at the German sites
Transform for Growth provides DEUTZ with basis for securing its long-term competitiveness
14Focus for growth: China
Relevant off-highway market1 Serviceable addressable market, broken down by region1
Units (millions)
Americas EMEA Asia-Pacific
15% 29% 56%
China 39%
Markets relevant to DEUTZ: agriculture, construction, material handling, and stationary equipment
15 1 Source: PSR – Power Systems Research, April 2020.Ramp-up of capacity in China on track
DEUTZ Hunan (SANY JV) output planning DEUTZ Tianjin output planning
Units (thousands) Units (thousands)
250 40
200
Our target for China:
30
150
100
CAGR 125% 20
CAGR > 200%
approx. €800mn
10
revenue in 20221
50
- -
2019 2020 2021e 2022e .. 202x 2021e 2022e 2023e 2024e
16 1 The revenue target of approximately €800 million includes the revenue generated by the joint venture with SANY. Under the equity method, this revenue is not recognized in
the consolidated financial statements.Localization of purchasing in China
▪ New purchasing organization established for the world's biggest engine
market
▪ Supplier audits mainly carried out by local teams during coronavirus-related
travel restrictions
▪ Significant reduction in the cost of materials and logistics costs thanks to
highest possible localization rate
▪ Achievement of maximum potential savings through needs-based SOPs
▪ Some of the first function runs and validation runs have been completed
▪ Local procurement process for the TCD 5.7 has already begun
Localization projects in China are on track, despite coronavirus crisis
17Progress with implementation of E-DEUTZ strategy
▪ The aim is for four core drivetrains to be market-ready by the Our E-DEUTZ target:
end of 2023
▪ Marketing of an all-electric 360V base system planned for
2021 – prototype agreement signed in 2020 approx. 5-10%
share of revenue in 2023/2024
2021 End of 2023
360V base system 48V base system 360V hybrid system 48V hybrid system
DEUTZ is evolving from being a demonstrator toward full-scale series production
18Ongoing expansion of the profitable service business
Revenue from the service business
€ million
CAGR +4.6%
Our service target:
352.4
€400mn
348.3
329.9
309.2 approx.
287.3
278.4
revenue in 2021
2015 2016 2017 2018 2019 2020
▪ New distribution channels and expansion of existing network: expansion of our own service centers,
acquisition of DEUTZ Austria, Motorcenter Austria, Pro Motor Servis CZ in 2020
▪ Digital services: diagnostics and interpretation of errors, DEUTZ advanced service tool, digital service and repair checklist
▪ New 'analog' service concepts and products: expansion of Xchange, mobile service technicians,
servicing and repair of non-DEUTZ engines, parts warranty, E-DEUTZ services
19Continual optimization of production processes ▪ New assembly line at the main Cologne site for engines of less than 4 liters brought on stream in Q4 2020 ▪ Based on lean manufacturing philosophy and implementation of Industry 4.0 applications ▪ Significant increase in quality, efficiency, and capacity ▪ Integration of cold testing of engines – lasting reduction in machine busy time and fuel consumption ▪ Better ergonomics and optimized industrial safety for employees 20
Expansion of sustainability efforts ▪ Application to join UN Global Compact submitted at the end of 2020 ▪ Commitment to upholding ten universally accepted principles relating to human rights, labor standards, environmental protection, and the fight against corruption ▪ Support for the 17 sustainable development goals ▪ Annual communication on progress to be published ▪ Greater accountability to be imposed on suppliers in relation to their sustainability contribution 21
Agenda Agenda Sales figures for 2020 Dr. Frank Hiller | CEO 22
Sales figures for 2020, yoy
New orders Unit sales Revenue
€ million Units € million
-20.1% -28.7% -29.6%
211,667 1,840.8
1,654.3
1,322.5
20,942
<
150,928 1,295.6
<
29,894
<
<
< thereof
< Torqeedo
2019 2020 2019 2020 < 2019 2020
<
▪ Huge fall in new orders due to the coronavirus crisis and the resulting reluctance to invest, and due to adverse effects
relating to the advance production of engines
<
<
▪ Torqeedo's unit sales jumped by 43% compared with 2019, mainly due to ramp-up of smaller trolling motors
▪ Orders on hand of €269.0 million as at December 31, 2020 (December 31, 2019: €253.3 million)
23Sales figures for Q4 2020, qoq
New orders Unit sales Revenue
€ million Units € million
+25.5% +22.1% +19.2%
42,369
388.9 34,700 <
5,837 367.4
310.0 7,813
< 308.2
<
<
< thereof
< Torqeedo
Q3 2020 Q4 2020 Q3 2020 Q4 2020 Q3 2020 Q4 2020
<
<
▪ Clear signs of a gradual economic recovery – double-digit percentage increases in sales figures compared with Q3/2020
<
▪ Double-digit percentage rise in new orders in all application segments except Miscellaneous
<
▪ Double-digit percentage rise in unit sales in all regions and application segments except Miscellaneous
▪ Significant revenue growth in all regions and application segments except Miscellaneous
▪ Business performance in the Miscellaneous application segment affected by seasonal fall in demand
24Coronavirus-related fall in revenue in all major regions
2020 (2019)
Africa and Middle East 4% (3%) Europe (excl. Germany) 41% (42%)
€54.8 million €532.8 million
+0.7% -31.4%
Asia-Pacific 19% (16%) €1,295.6
million
€243.9 million (€1,840.8
-17.2% million)
Americas 17% (22%) Germany 19% (17%)
€222.5 million €241.6 million
-45.0% -22.2%
Disproportionately sharp decrease in the Americas due to a weak Material Handling application segment
25Revenue down in all application segments
2020 (2019)
Miscellaneous 8% (6%) Construction Equipment 29% (29%)
€103.3 million €378.5 million
-2.3% -29.3%
Stationary Equipment
9% (8%) Material Handling 13% (22%)
€1,295.6
€114.3 million million €172.5 million
-26.6% (€1,840.8 -56.8%
million)
Agricultural Machinery 14% (16%) Service 27% (19%)
€178.7 million €348.3 million
-39.1% -1.2%
Growth strategy for the service business pays off in the crisis
26Agenda Agenda Key financials in detail Dr. Sebastian C. Schulte | CFO 27
Significant improvement in operating profit in Q4 2020
Operating profit (EBIT before exceptional items) ▪ Operating loss of €74.7 million (2019: operating profit of €78.8
EBIT margin before exceptional items million)
(€ million) − Coronavirus leads to sharp fall in revenue with related
-74.7 | -5.8%
diseconomies of scale
< -100% yoy − Payments made under continuation agreements with suppliers
that are going through insolvency proceedings
(around €9 million)
− Demand-related impairment losses recognized on capitalized
development projects and sales licenses (around €17 million)
-3.5% -2.5%
-5.1% ▪ Restructuring costs of €31.9 million1 for Transform for Growth
-9.1
-11.8
-15.7
recognized as an exceptional item
-13.6%
▪ Net loss of €107.6 million (2019: net income of €52.3 million)
owing to decline in EBIT; earnings per share of minus €0.89
-38.1 (2019: €0.43)
Q1 2020 Q2 2020 Q3 2020 Q4 2020
▪ 42% improvement in operating profit in Q4 compared with Q3,
partly because of substantial rise in new engine business
28 1 In Q3 2020, restructuring costs of €37.8 million had been anticipated. However, the costs for achieving the confirmed restructuring targets are now expected to be lower overall.Business performance in the segments 1/2
DEUTZ Compact Engines (DCE) DEUTZ Customized Solutions (DCS)
€ million 2020 2019 YoY change € million 2020 2019 YoY change
New orders 954.3 1,268.4 -24.8% New orders 324.5 341.7 -5.0%
Unit sales (units) 102,054 164,677 -38.0% Unit sales (units) 18,980 26,048 -27.1%
Revenue 943.8 1,446.4 -34.7% Revenue 310.1 362.5 -14.5%
EBIT before EBIT before
-80.5 57.7Business performance in the segments 2/2 Other € million 2020 2019 YoY change New orders 46.4 47.8 -2.9% Unit sales (units) 29,894 20,942 +42.7% Revenue 44.4 35.5 +25.1% EBIT before exceptional items -12.9 -21.7 +40.6% EBIT margin before exceptional items (%) -29.1 -61.1 – ▪ Slight decrease in new orders compared with 2019 as a result of coronavirus ▪ Sharp rise in unit sales and revenue, partly due to ramp-up at Torqeedo ▪ The smaller increase in revenue than in unit sales was primarily a result of the product mix ▪ Year-on-year improvement in operating profit for the segment owing to the increase in business volume, implementation of a performance program, and the deconsolidation of DAMSA in H1 2019 ▪ Substantial decline in Q4 2020 compared with Q3 2020 due to seasonal factors 30
R&D: spending and capital expenditure
R&D spending (after deducting grants) Capital expenditure (after deducting grants)2
€ million € million
6.3% -3.6%
5.2%
108.2 104.3
95.8
81.4 10.4 <
32.4 <
<
<
<
thereof additions as a result of leases3
2019 2020 2019 2020
<
R&D ratio 1
<
<
▪ Disproportionately strong rise in the R&D ratio caused by sharp fall in revenue<
<
▪ Reduction in capital expenditure as a result of cost-cutting measures being implemented
31 1 Ratio of net R&D expenditure (after deducting grants) to consolidated revenue. 2 After deducting grants; capital expenditure on property, plant, and equipment (including right-of-use
assets for leases) and intangible assets, including capitalization of R&D. 3 Right-of-use assets for leases under IFRS 16.Cash flow from operating activities & working capital
Cash flow from operating activities Working capital
€ million € million
21.8%
17.4%
115.6
293.2
235.0
44.9
2019 2020 Dec. 31, 2019 Dec. 31, 2020 Working capital ratio (average)1
▪ Decrease in cash flow from operating activities caused by the sharp decline in operating profit as a result of
coronavirus
▪ Significant reduction in working capital compared with the prior year, mainly due to the early adjustment of production
and procurement activities and a further intensification of working capital management in response to the fall in
demand resulting from coronavirus
▪ Increase in the working capital ratio due to the sharp fall in revenue
32 1 Average working capital at the four quarterly reporting dates divided by revenue for the previous twelve months.Free cash flow and net financial position
Free cash flow1 Net financial position
€ million € million
-15.2
-36.6 -35.8
-83.8
2019 2020 Dec. 31, 2019 Dec. 31, 2020
▪ Proactive management of capital expenditure and working capital clearly helped to offset the coronavirus-related decrease in
cash flow from operating activities; reduction in investing activities compared with 2019
▪ In Q4 2020, free cash flow rose sharply to €43.0 million because of the higher volume of business, optimization of working
capital, and the first positive effects from the efficiency program
▪ Deterioration in net financial position owing to the impact of the coronavirus crisis and a rise in lease liabilities to €58.0 million
(December 31, 2019: €41.9 million)2
1 Cash flow from operating activities and from investing activities less interest expense. 2 Lease liabilities under IFRS 16.
33Sufficient medium- and long-term funding options
Equity ratio Funding
€ million € million
Long-term bank loans and syndicated credit lines Lease liabilities
1,301.2
1,180.5
160
50.1% 150
45.3%
652.4
535.2 75.6
36.4
13.6 14.0 7.6
Dec. 31, 2019 Dec. 31, 2020 up to 1 year 1 to 5 years up to 1 year 1 to 5 years over 5 years
Total assets Equity Equity ratio Repayment profile Term of credit lines
▪ Syndicated credit lines totaling €310 million
− €150 million maturing in November 2021, with an extension option (amount drawn down as at December 31, 2020: €0 million)
− €160 million maturing in June 2024 (amount drawn down as at December 31, 2020: €65 million)
▪ Positive exceptional item of around €60 million from payment of the final installment of the purchase price for the sale of
land, which is expected to be made in 20211
1 The amount and the date of the payment depend on when the development plan for the site is formally approved by the City of Cologne and so cannot be precisely determined yet.
34Agenda Agenda Outlook Dr. Frank Hiller | CEO 35
2021 outlook for key end-customer markets1 Change in unit sales compared with 2020 (%) Europe North America China Construction equipment 0 to +5 +5 to +10 0 to +10 Material handling 0 to +5 +5 to +10 0 to +10 Agricultural machinery 0 to +5 +5 to +10 -5 to 0 ▪ Key customer industries are expected to gradually recover in the next few years 36 1 Power Systems Research 'OELink Update Bulletin – Q4 2020', January 2021. VDMA/Agrievolution, 'Business & Market Development for Agri Machinery World', February 2021.
Group guidance for 2021
Actual 2020 Guidance for 2021
Unit sales 121,034 engines1 at least 130,000 engines1
Revenue €1,295.6 million at least €1.40 billion
EBIT margin (before exceptional items) -5.8% to at least break even
Free cash flow minus €35.8 million negative low- to mid-double-digit
million euro amount2
▪ Difficulties with the supply of some components will have an adverse impact in the first half of the
year and possibly longer
▪ Positive exceptional item from payment of the final installment of the purchase price for the sale
of the Cologne-Deutz site, which is expected to be made in 20212
37 1 Excluding electric motors of DEUTZ subsidiary Torqeedo. 2 Depending on the timing of payment of the final installment of the purchase price, the amount and date of which depend on
when the development plan for the site is formally approved by the City of Cologne.Medium-term targets for 2023/2024
▪ Technology-neutral approach to development of the product
portfolio and expansion of the high-margin service business
Our targets for 2023/2024:
▪ Implementation of regional growth initiatives
▪ Systematic implementation of the Transform for Growth
efficiency program, with targeted gross cost savings of €100
> €2 billion
revenue
million p.a. from the end of 2022
− Adjustment of staff costs and operating costs
− Optimization of the global production network 7–8%
− Reduction of complexity EBIT margin
before exceptional items
DEUTZ has taken the steps that are needed for sustained profitable growth
38Annex
Overview of segments, Q1–Q4
New orders YoY Revenue YoY
€ million 2020 2019 change € million 2020 2019 change
(%) (%)
DEUTZ Compact Engines 954.3 1,268.4 -24.8 DEUTZ Compact Engines 943.8 1,446.4 -34.7
DEUTZ Customized Solutions 324.5 341.7 -5.0 DEUTZ Customized Solutions 310.1 362.5 -14.5
Other 46.4 47.8 -2.9 Other 44.4 35.5 25.1
Consolidation -2.7 -3.6 +25.0 Consolidation -2.7 -3.6 +25.0
Total 1,322.5 1,654.3 -20.1 Total 1,295.6 1,840.8 -29.6
Unit sales YoY EBIT before except. YoY
Units 2020 2019 change items 2020 2019 change
(%) € million (%)
DEUTZ Compact Engines 102,054 164,677 -38.0 DEUTZ Compact Engines -80.5 57.7Overview of segments, Q4
New orders Q4 2020 Q4 2019 YoY Revenue Q4 2020 Q4 2019 YoY
€ million change € million change
(%) (%)
DEUTZ Compact Engines 293.9 248.9 +18.1 DEUTZ Compact Engines 275.2 366.7 -25.0
DEUTZ Customized Solutions 83.2 74.5 +11.7 DEUTZ Customized Solutions 84.3 86.0 -2.0
Other 12.4 16.5 -24.8 Other 8.5 9.0 -5.6
Consolidation -0.6 -0.8 +25.0 Consolidation -0.6 -0.8 +25.0
Total 388.9 339.1 +14.7 Total 367.4 460.9 -20.3
Unit sales Q4 2020 Q4 2019 YoY EBIT before except. Q4 2020 Q4 2019 YoY
Units change items change
(%) € million (%)
DEUTZ Compact Engines 31,228 42,039 -25.7 DEUTZ Compact Engines -12.9 11.9Income statement
€ million 2020 2019
Revenue 1,295.6 1,840.8
Cost of sales -1,105.9 -1,510.5
Research and development costs -97.7 -95.3
Selling and administrative expenses -146.5 -151.8
Other operating income 15.0 29.0
Other operating expenses -68.3 -24.3
Write-downs of financial assets -1.3 -1.7
Profit/loss on equity-accounted investments 1.4 0.7
Other net investment income 1.1 1.2
EBIT -106.6 88.1
thereof exceptional items -31.9 9.3
thereof operating profit/loss (EBIT before exceptional items) -74.7 78.8
Financial income, net -4.0 -13.0
Income taxes 3.0 -22.8
Net income -107.6 52.3
thereof attributable to shareholders of DEUTZ AG -107.6 52.3
thereof attributable to non-controlling interests 0.0 0.0
Earnings per share (basic/diluted, €) -0.89 0.43
42Balance sheet: assets € million Dec. 31, 2020 Dec. 31, 2019 Property, plant and equipment 361.7 347.2 Intangible assets 197.2 216.2 Equity-accounted investments 50.3 51.1 Other financial assets 4.4 5.0 Non-current assets (before deferred tax assets) 613.6 619.5 Deferred tax assets 74.2 68.6 Non-current assets 687.8 688.1 Inventories 274.2 321.7 Trade receivables 113.8 152.1 Other receivables and assets 32.8 79.8 Receivables in respect of tax refunds 7.2 4.2 Cash and cash equivalents 64.7 55.3 Current assets 492.7 613.1 Total assets 1,180.5 1,301.2 43
Balance sheet: equity and liabilities € million Dec. 31, 2020 Dec. 31, 2019 Issued capital 309.0 309.0 Additional paid-in capital 28.8 28.8 Other reserves -3.9 0.1 Retained earnings and accumulated income 201.1 314.3 Equity attributable to shareholders of DEUTZ AG 535.0 652.2 Non-controlling interests 0.2 0.2 Equity 535.2 652.4 Provisions for pensions and other post-retirement benefits 148.5 151.2 Deferred tax liabilities 0.6 0.8 Other provisions 37.5 33.4 Financial debt 58.3 34.1 Other liabilities 5.9 5.7 Non-current liabilities 250.8 225.2 Provisions for pensions and other post-retirement benefits 11.9 12.4 Other provisions 83.3 66.6 Financial debt 90.2 36.4 Trade payables 153.0 180.6 Liabilities arising from income taxes 2.0 2.7 Other liabilities 54.1 124.9 Current liabilities 394.5 423.6 Total equity and liabilities 1,180.5 1,301.2 44
Cash flow statement (condensed) € million 2020 2019 EBIT -106.6 88.1 Cash flow from operating activities 44.9 115.6 Capital expenditure on intangible assets, property, plant and equipment and investments -75.9 -145.6 Proceeds from the sale of non-current assets 0.8 4.2 Acquisition of subsidiaries -1.1 -8.0 Cash flow from investing activities -76.2 -149.4 Cash flow from financing activities 41.5 -43.9 Change in cash and cash equivalents 10.2 -77.7 45
Thank you for
your attention!
46Questions &
answers
47Financial calendar and contact details
Financial calendar 2021 DEUTZ online annual report for 2020
Including a KPI tool and interactive features:
Annual General Meeting April 29 www.deutz.com/gb2020
(virtual)
Quarterly statement for Q1 2021 May 6
Interim report for H1 2021 August 12
Quarterly statement for Q3 2021 November 10
Contact
Christian Ludwig, CFA
SVP Communications & Investor Relations
+49 (0)221 822 3600
christian.ludwig@deutz.com
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